Markets

Mitigating Dangerous Investing Emotions

May 30, 2019 by Hans Blake, CFA, CPA

Reading Time: 2 minutes On today’s Intelligent Money Minute, we’ll interview Rick Ferri on mitigating dangerous investing emotions. During this episode, Rick explains the concept of behavioral finance and the power of recognizing your emotional tendencies. He stresses the value of being introspective in order to avoid reactionary investing. In truth, no advisor can consistently deliver “outperformance.” However, we believe we offer more practical and reliable ways. Read more about our three pillars of thought here. Check out our previous podcasts with Rick on The Power of Passive Investing and Remembering the Legacy of Jack Bogle. We’ll be interviewing Rick on several podcasts regarding index investing, behavioral finance, and practical tips for retirees, so be sure to subscribe to our Intelligent Money Minute podcasts. Rick Ferri is a fellow CFA Charterholder, Marine veteran, author, and owner of Ferri Investment Solutions. He continues to write books and articles, provide educational webinars, and teach financial lectures.

Rick Ferri Bio

Rick Ferri earned a B.S. in Business Administration and an M.S. in Finance. He also holds a Chartered Financial Analyst (CFA) charter through the CFA Institute. After college, Rick served as a U.S. Marine Corps officer and fighter pilot for 20 years of active duty and reserve service. Rick’s investment career spans three decades and offers a history of empowering people to achieve their goals. He landed in the brokerage industry in 1989 where he learned the wrong way to invest. As a result of 10 frustrating years, Rick founded one of the country’s first low-fee investment advisory firms. Rick’s firm grew to a sizable business over the next two decades due to the explosion of interest in low-fee investing. This growth provided good-paying jobs to dozens of people and allowed Rick to take on business partners with whom he generously shared his equity. Rick left the firm a few years ago and is no longer an owner. Ferri Investment Solutions is Rick’s new firm. This modern concept provides even greater value to investors by “unbundling” adviser services whereby clients pay only for the time it takes to assist them. In addition, Rick’s industry consulting firm helps other advisers build their investment practices, and he has launched Core-4 Portfolios to provide simple model portfolios for use by a wide variety of investors.

February 1, 2019- FFN@N (2019 Market Outlook)

January 21, 2019 by Hans Blake, CFA, CPA

Pictures from Event

Topic

2018 markets were tough on most investors. The volatility increase at the end of 2018 made investors nervous, and many economists think that volatility is here to stay. On February 1st at our First Friday Networking at Noon event, we reviewed 2018 markets and providing a market outlook for 2019. Hans Blake, CFA, CPA was joined by Dr. Jeffrey Roach, our Director of Research. We provided some key insights and outlooks regarding the macroeconomic environment around the world.

Hans Blake, CFA, CPA Bio

Hans has worked with high-net-worth individuals and institutions around the world. He is a Chartered Financial Analyst® (CFA) and Certified Public Accountant (CPA) who managed over $350M before founding Intelligent Investing. Hans has spent his entire career helping people minimize financial stress to maximize their lives.

The Chartered Financial Analyst® charter is considered by many to be the gold standard among financial professionals. Less than 20% of those who start the process ever become CFA® charterholders. Hans writes financial articles and gives public Intelligent Talks. He has been interviewed by The Greenville News, has appeared on WYFF News 4, and has frequented local radio programs to talk about the markets and portfolio management. In 2016, he received the Highest Award for Achievement by Dale Carnegie.

Jeff Roach, PhD Bio

Dr. Jeff Roach is the Director of Research at Intelligent Investing while currently running an independent economic consulting firm. His unique experience on an institutional trading floor, academic research, and actual client money-management make him an engaging speaker for any audience.

In order to facilitate cutting edge research, he maintains frequent contact with Federal Reserve economists, Wall Street analysts, and other leading economists from around the world. Dr. Roach has presented economic research as far away as Italy’s Ministry of Finance in Rome and Office of National Statistics in the UK. Additionally, he has addressed a German Economic Roundtable and was invited to speak at Prudential’s Executive Leaders Conference hosted by Stanford University. Dr. Roach earned a BS in Mathematics from Bob Jones University, both an MA and PhD in Economics from Clemson University, and received a visiting post-doctoral research appointment at Harvard University.

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5 Thoughts on Oil (In Under 1 Minute)

December 10, 2018 by Hans Blake, CFA, CPA

Reading Time: < 1 minute

Oil prices have dropped about 22% last month (or 33% from the Oct. 3rd peak to around $51/barrel for U.S. crude oil futures)
The benefit is that consumers don’t have to pay as much at the pump. Average prices at the pump are falling at the fastest rate in 3 years, according to fuel tracker GasBuddy. (down about 31 cents a gallon compared to a month ago)
Falling oil prices used to be a bigger boon to the U.S. consumers but are not as effective today. (I.e., in 1972, it took 1.1 barrels of oil to produce ~ $1k of GDP, and now it only takes 0.4 barrels)
Extraction techniques have changed from using large debt-free companies (Exxon, BP) who didn’t have much debt, to now using smaller debt-laden companies. Therefore, the lower oil costs may drive these smaller companies into bankruptcy, or prevent them from wanting to make further investments into energy, which can hurt the economy.
The trend in net export levels has been declining for over a decade so domestic demand is waning and putting downward pressure on global prices (in addition to the most obvious, that the global economy is hovering at below-trend growth ever since the Great Recession.)

Which Type of Investor Are You?

May 22, 2018 by Hans Blake, CFA, CPA

Reading Time: < 1 minute

South Carolina Business Review Interview

When it comes to investing in stocks and bonds, have you ever given any thought as to your personal investment philosophy or behavior? I recently had the privilege of being interviewed by Mike Switzer on the South Carolina Business Review.

The South Carolina Business Review focuses on news from South Carolina’s business community with interviews of many small business owners and business leaders from around the state. To hear the full five minute interview, click to go to the South Carolina Public Radio website.

Investor Categories

Investors, broadly speaking, fall into one of three categories:

Rational Investors- based on Harry Markowitz’s Rational Man theory;
Irrational Investors- based on behavioral finance which says man is emotional and biased;
A mixture of 1 and 2.

Advisors Are Humans Too

Financial advisors have the same emotions and biases as their clients. Share on X

By understanding the psychological makeup of humans, advisors may be able to better communicate and coach investors to stick to the long-term goals and plans. The problem is that advisors are also humans who have the same emotions and biases as their clients do. We must first understand ourselves, before we can help others… Intelligent Investing believes in behavioral coaching and has three pillars of financial thought that guide our philosophy…traditional finance, behavioral finance, and values-based finance.

What the Solar Eclipse Can Teach Us About Markets

July 31, 2017 by Hans Blake, CFA, CPA

Reading Time: 3 minutes

How to Prepare for the Solar Eclipse Video

Ever since I was a kid, I’ve been fascinated with astronomy (not astrology–big difference). My neighbors introduced me to the planets and moon’s craters using a telescope on their back porch in Pennsylvania. I used to wake up in the middle of the night to watch meteor showers, took Astronomy as an elective in college, and have even been to a star party. (but that is for another blog). OK, so I’m an official geek. Well, this year is a big year for astronomy. Unless you’ve been hiding under the shadow of a rock (see what I did there), you know a total solar eclipse is coming.

The Great American Total Solar Eclipse

A solar eclipse is when the moon is in between the earth and the sun, and the moon blocks the sun’s rays. The first total solar eclipse visible in the U.S. in nearly four decades is expected to dazzle on Aug. 21, 2017. During the so-called Great American Total Solar Eclipse, the 70-mile-wide shadow cast by the moon will darken skies from Oregon to South Carolina. During most solar eclipses, the moon takes just a “bite” out of the sun — these are called partial solar eclipses. However, the August event will go down as the first total solar eclipse whose path of totality stays completely in the United States since 1776. How patriotic is that?

Historically important eclipse

Ancient cultures tried to understand why the sun temporarily vanished from the sky, so they came up with various reasons for what caused a solar eclipse. Legends surrounding solar eclipses involved mythical figures eating or stealing the sun, and others interpreted the event as a sign of angry or quarreling gods. Though the following story relates to a lunar eclipse which is where the earth’s shadow appears on the moon, it still applies:

On June 30, 1503, Christopher Columbus was stranded in Jamaica. The indigenous people of the island welcomed Columbus and his crew and fed them, but Columbus’ sailors cheated and stole from the natives. After six months, the natives stopped their food supply.

Columbus had on board an almanac and upon consulting the book, he noticed the date and the time of an upcoming lunar eclipse. He was able to use this information to his advantage. He requested a meeting that day with the leader and told him that his god was angry with the local people’s treatment of Columbus and his men. Columbus said his god would provide a clear sign of his displeasure by making the rising full moon appear “inflamed with wrath.”

On March 1, 1504, the lunar eclipse and the red moon appeared on schedule, and the indigenous people were frightened.

So what can the solar eclipse teach us about markets?

There is a Cycle
The Current Cycle Doesn’t Last Forever
Don’t Misbehave Emotionally

There is a Cycle

Just as there is a schedule established for the location and time of eclipses, there are business cycles as well. The business cycle consists of four phases:

Expansion– a period of economic increase or positive growth
Peak– the highest turning point of a business cycle
Contraction– a period of economic decline or negative growth
Trough– the lowest turning point of a business cycle

The Current Cycle Doesn’t Last Forever

Columbus timed the eclipse with his hourglass, and shortly before the totality ended after 48 minutes, he told the frightened indigenous people that they were going to be forgiven. When the moon started to reappear from the shadow of the Earth, he told them that his god had pardoned them. Intelligent investors know that the current phase we are in doesn’t last forever. That doesn’t mean you should try and time the markets, but you should be prudent and be aware of where we are compared to historical averages. A diversified portfolio should be able to weather all phases of the business cycle. That doesn’t mean there won’t be losses, but the eggs shouldn’t be placed all in one basket.

Don’t Misbehave Emotionally

Many economists believe we are in the latter parts of the expansionary phases, while others believe this could be a new floor to new heights. It is important to not be fearful or greedy as we are likely in the mid to late parts of the expansionary phase of the current business cycle in the U.S. Below are some common emotions that people have when they face different market phases. Whatever your viewpoint, be sure to have an accountability partner who can help you weather the storms. Remember that behavioral coaching is one of the most important things an advisor can provide.

Unfortunately for the indigenous people, they didn’t have the knowledge about the eclipse and acted emotionally out of fear. However, you are now aware of the market cycles and with some help can protect yourself from the next downturn in the markets.

Blog Resources:

https://en.wikipedia.org/wiki/Historically_significant_lunar_eclipses